Qinetiq, the defence technology group whose military equipment includes bomb detection robots, has jumped nearly 8% after a positive update.
The company - spun out of the Ministry of Defence in 2002 - reported a 7% rise in full year profits to a better than expected £107.8m, helped by a good performance from its services business in Europe, the middle east and Africa.
It is £128m of the way through a £150m share buyback but this may be reviewed when it ends in late summer, with analysts suggesting there was scope for it to be extended.
But the company was cautious about the outlook, especially for the UK defence industry with the prospect of further austerity measures now the Conservatives have won the general election.
Even so, its shares are up 17.1p to 232.3p, helped by news that JP Morgan Cazenove had upgraded from neutral to overweight, pointing to an attractive free cash flow and dividend yield. Investec analyst Rami Myerson said:
Qinetiq reported a good set of 2015 results... Cash generation was impressive and net cash of £195.5m is better than our forecasts for £182m. New chief executive Steve Wadey joins a company that is healthy operationally with a strong balance sheet. We, and the broader investor community, are keen to understand the strategy for the next stage in Qinetiq’s evolution.
Liberum said:
As most exposed to UK defence, the shares rallied post the Conservative victory and now trade on a 2015 PE of 14.3 times, dividend per share yield of 2.9% and free cash flow yield of 5.4%. The buyback provides technical support and the shares should respond well to today’s results.
Responding badly to results was Dairy Crest, down 35p at 483p after the company reported a 59% fall in full year profits to £22.1m and said it expected growth in the current year to be weighted to the second half.
It has been hit by falling sales by its key supermarket customers and a fall in milk prices.
The company expects to complete the sale of its dairies business once regulatory approval is received, leaving it predominantly a branded business including its Cathedral City cheddar.
Jefferies analysts said:
We note that the underlying losses in dairies were greater than anticipated, but the divestment of this business is likely to be approved eventually, in our view, and investors should rather focus on the business that will be retained. Net debt is slightly higher than anticipated due to exceptionals.
